An insurance agent is essentially an “order taker.” Under well-established law in Michigan, an insurance agent owes no duty to advise an individual seeking insurance about the adequacy of coverage absent a special relationship, which arises only in limited circumstances (e.g., a special relationship may arise when an insurance agent misrepresents the nature or extent of coverage). The law is far more nebulous when a third party is involved. Does an insurance agent owe a duty to a non-customer who never paid a premium on a policy the agent placed, communicated with the agent about coverage, or otherwise established a relationship with the agent?
This question emerged in Clark v Insurance Agent. There, plaintiff’s friend purchased a commercial-insurance policy for her medical-transportation business. She later requested that defendant, the insurance agent, add a vehicle that she occasionally used to transport patients. She disclosed that plaintiff owned the vehicle. But she never inquired about coverage for plaintiff, who didn’t transport patients or otherwise work for her business.
Several months after the policy went into effect, plaintiff was involved in an accident. He didn’t have insurance covering his vehicle for personal use. He looked to the insurer that issued his friend’s commercial-insurance policy, which refused to pay his no-fault claim since he wasn’t an insured. He litigated the coverage issue and lost, after which he filed an errors-and-omissions action against defendant. He claimed that defendant owed him a duty to name him as an additional insured on the policy.
CEF attorneys moved for summary disposition on behalf of defendant. They argued, among other things, that defendant owed no duty to plaintiff, a third party to the relationship between defendant and plaintiff’s friend. They pointed out that defendant satisfied the needs of plaintiff’s friend by ensuring the availability of coverage in the event that she got into an accident while driving plaintiff’s vehicle in the course of her business.
The trial court agreed that because plaintiff never contacted defendant about obtaining insurance, defendant didn’t have any relationship, much less a special relationship, with plaintiff. From that premise, the trial court held that defendant didn’t owe a duty to advise plaintiff about the scope or adequacy of his friend’s coverage. The trial court also concluded that defendant fulfilled her duty to plaintiff’s friend by providing a policy that met her needs.
What this means for insurance agents
Based on Clark, ownership of an insured vehicle may not be sufficient to create a legal relationship between the owner and the insurance agent. But the takeaway from Clark is a bit more nuanced. The result may have been different if plaintiff’s friend had claimed that she and defendant discussed coverage for plaintiff. To avoid third-party liability, insurance agents should always keep detailed records of their discussions with customers.